Earning forecasts for Q4 FY24: Healthcare and cement companies to shine

• Domestic cyclicals will aid earnings growth of sectors like healthcare, cement and auto.
• Global factors may have impacted sectors like oil & gas companies, metals and speciality chemicals.
• Consumer, technology and capital goods are expected to exhibit moderate growth.
  

In the fourth quarter of FY24, Indian companies that bank on domestic demand would have done much better than those which depend on the globe for growth, say forecasts. Healthcare, cement and automobile companies are expected to report strong double-digit growth in profits, while oil & gas companies, metals and speciality chemicals are expected to see a profit decline, according to an India Strategy report by Motilal Oswal.

Consumer, technology and capital goods are expected to exhibit moderate growth. “We estimate Nifty earnings to grow 6% YoY in 4QFY24. Margin tailwinds are likely to narrow due to a high base. Earnings before interest tax depreciation and amortization (EBITDA) margin is projected to remain flat for the Nifty at 19.8%, on account of a high base. Overall earnings growth is anticipated to be driven, once again, by domestic cyclicals, such as Auto and BFSI. Conversely, earnings growth is expected to be weighed down by global cyclicals, such as O&G and Metals, which are anticipated to decline,” says Motilal Oswal's report.

Index-wise earnings forecast for Q4 FY24
Source: Motilal Oswal

NBFCs to lead growth in the BFSI sector

Non-banking financial companies (NBFC) as well as private banks are expected to lead the growth in the BFSI sector in the coming quarter. Public sector banks are expected to see healthy growth as well but will be at their lowest in 8-10 quarters, forecasts Motilal.

Equirus also sees NBFC and private sector earnings growth in double digits. “4QFY24 is expected to have 16% loan growth driven by retail and business banking. Sequentially, net interest margin (NIM) will compress for most banks due to the upward repricing of deposits. Among NBFC, Gold, Diversified and microfinance institutions (MFIs) to report strong growth,” says a report by Equirus.

The most watched tech sector, however, is expected to continue with its weak revenue growth performance, hit by furloughs and a cut in discretionary spending. It also falls under the theme of global cyclicals impact. Most of the companies in the sector’s earnings growth has been stagnant for the last six quarters.

“Sluggish performance from top-6 large caps continues with -1.2% to 1.3% QoQ growth in CC terms along with a flattish margin. MidCap IT to outperform large peers with QoQ sales growth of 2.4% against 0.3% for large caps,” says Equirus.

Q4 FY24 Earnings Forecast
Source: Motilal Oswal

Consumer, retail to see sluggish growth

Like the IT sector, the FMCG sector too is expected to see sluggish growth in FY24 due to a much-delayed uptick in rural consumption. Competition from smaller players has also been eating into top companies’ sales in select staples, leading them towards price cuts.

“Steady growth in urban markets, soft demand trend in rural markets, further moderation in pricing growth and a YoY margin expansion off a weak base would be the key trends for the staple companies,” says Equirus.

Going ahead, however, FMCG players could see a better year, believes Motilal Oswal. “FY24 was an interim phase when price cuts and consumer offers impacted revenue growth, while volume recovery lagged (around 12-15 months). We believe volume growth has bottomed out and expect a better print in FY25,” it adds.

The retail sector might also see some improvement due to the wedding and festival season. “Demand is expected to remain subdued in the retail space as January was soft and February was slightly better, benefiting from the wedding season and partly from the extended winter season. Metros/Tier 1 cities/towns continue to outperform Tier 2/Tier 3 cities,” says Motilal Oswal.

But, overall trends remain weak especially if compared on a year-on-year basis. Added to that, many companies have been expanding their store footprints. “Continued weakness in demand trends to result in muted performance for most apparel & footwear players, though network addition & low base of last year to make revenue numbers optically higher,” opines Equirus.

On an overall basis, the key commentary from companies that investors would watch include demand trends for the coming year. The key ponderables by investors in FY25 would be political continuity in the upcoming election season, consumption trends, as well as the pace of institutional inflows into equity.

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